Fiscal drag

What is fiscal drag?

The Oxford dictionary defines it as:

‘The deflationary effects of a progressive taxation system on a country’s economy. As wages rise, a higher proportion of income is paid in tax’

The recent comments made by the Chancellor in the Autumn Statement, froze most Income Tax allowance and rates at current levels until 2028.

This means that wage earners who receive pay increases until April 2028, to try and keep spending power intact, will pay income tax on any increase. In certain circumstances, they may also see their taxable income boosted into the 40%, or 45%, Income Tax bands.

If wage increases continue to lag behind inflation, then wage earners will suffer a double hit to their spending power in coming years.

Latest Blog
20
May

UK Interest Rates Trending Down – What It Means for You

After a period of rising interest rates, there’s a noticeable shift in the UK f...

Read More
15
May

Will you be affected by Making Tax Digital?

Making Tax Digital for Income Tax: One Year to Go The UK tax landscape is on the cusp...

Read More
14
May

What are CDC pensions?

The UK government is introducing a significant shift in pension schemes with the expa...

Read More
08
May

Regulatory Changes Impacting UK Small Businesses

Alongside tax reforms, HMRC’s Spring 2025 update introduces a variety of regula...

Read More